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Cabinet approves Amendments in (i) the Constitution (Scheduled Castes) Order, 1950 to modify the list of Scheduled Castes of the State of Odisha
Feb 01,2017

The Union Cabinet chaired by the Prime Minister Shri Narendra Modi has given its approval for amendments in (i) the Constitution (Scheduled Castes) Order, 1950 to modify the list of Scheduled Castes of the State of Odisha, and (ii) the Constitution (Pondicherry) Scheduled Castes Order, 1964 so as to change name of the Union Territory from Pondicherry to Puducherry in the Order. The Bill namely Constitution (Scheduled Castes) Orders (Amendment) Bill, 2017 incorporating the above changes will be introduced in the Parliament.

Proposal of Sualgiri, Swalgiri caste, as per approved Modalities, was found to be eligible for its inclusion as a synonym of Sabakhia caste at SI. No. 79 in the list of Scheduled Castes of Odisha. Further, the name of Union territory of Pondicherry has been changed to Puducherry vide the Pondicherry (Alteration of name) Act, 2006 w.e.f. 01.10.2006. Accordingly, an amendment is needed in the Constitution (Pondicherry) Scheduled Castes Order, 1964 to this effect.

The Government approved Modalities in June 1999, as amended in June 2002, for considering proposals in regard to modifications in the lists of Scheduled Castes and Scheduled Tribes. According to the approved Modalities, amending legislation to the concerned Constitution Order is proposed only in respect of such proposals of the concerned State Government/Union Territory Administration, which have been agreed to both by the Registrar General of India (RGI) as well as the National Commission for Scheduled Castes (NCSC).

The Constitution of India provides certain privileges / concessions to the members of Scheduled Castes which are notified under the provisions of Article 341 of the Constitution of India. First list of Scheduled Castes in relation to a State or Union Territory is to be issued by a notified Order of the President after having consultation with the State Government concerned. Any subsequent inclusion in or exclusion from the list of Scheduled Castes can be effected through an Act of Parliament as envisaged under clause (2) of Article 341.

Six Presidential Orders were issued between 1950 and 1978 for specifying Scheduled Castes in respect of various States/Union territories. These Orders have been amended from time to time by Acts of Parliament enacted as per Article 341(2) of the Constitution between 1956 and 2016.

After the Bill becomes an Act, members of the community included in the list of Scheduled Castes will be able to derive benefits meant for Scheduled Castes under the existing schemes. Some of the major schemes of this kind include Post Matric Scholarship, National Overseas Scholarship, Rajiv Gandhi National Fellowship, Top Class Education, Concessional Loans from National Scheduled Castes Finance and Development Corporation, Hostels for SC Boys and Girls etc. In addition to above, they are also entitled to the benefits of reservation in services and admission to educational institutions.

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Housing Finance Economics to Face Roadblocks Due to Falling Bank Interest Rates
Feb 01,2017

The large-ticket housing loan segment (primarily ticket size above INR5 million) is likely to face disruption, as housing finance companies (HFCs) would be forced to realign their strategies in view of a sharp reduction in lending rates by banks, says India Ratings and Research (Ind-Ra). This may affect business growth for HFCs, on account of increased competitiveness of banks. This could act as a double blow for HFCs already reeling from the slowdown in core housing loan portfolio growth. About 20% of the housing portfolio of large HFCs could be higher than INR5 million in ticket size.

The competition between HFCs would have implications for profitability, especially in view of limited manoeuvrability of such companies with regard to the expansion of leverage or high-yield non-core portfolio. Moreover, playing on the yield curve (short-term borrowing to save on tenor premium while lending largely remains long-term) would expose HFCs to liquidity and refining risks.

The fall in lending rates by banks is likely to incentivise borrowers to shift their portfolio from high-cost HFC loans to bank loans. Housing loans from banks do not involve prepayment charges, if borrowing is undertaken on a floating rate.

Ind-Ra believes that the impact of the fall in lending rates on small-ticket loan providers is unlikely to be significant, as borrowers are generally less price-sensitive. Furthermore, HFCs in this segment have a superior pricing power due to limited competition from banks.

Ind-Ra also believes that housing loan segment, albeit the best-performing asset class in the last 15 years, could come under some pressure, if underlying loan collaterals witness material price correction.Loans where underlying property is under construction would especially be vulnerable.

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Banks Raise INR180 billion in Additional Tier 1 Bonds in FY17
Feb 01,2017

Indian banks raised INR180 billion in perpetual bonds or Additional Tier-1 (AT1) bonds in FY17, while for public sector banks (PSBs) the capital raised goes towards meeting Basel III regulatory requirements, for private banks the capital raised is focused towards fueling their growth aspirations, says India Ratings and Research (India Ratings). India Ratings believes the softening of yields have given an impetus to the development of the AT1 markets. India Ratings rated around 65% of the AT1 issuances in FY17 based on its objective criteria based approach.

India Ratings has an objective criteria to rate AT1 bonds. The criteria is designed premised on the three ways in which an investor in an AT1 instrument can make a potential loss. It uses the notching down from the standalone rating profile approach. The three pillars of the AT1 ratings criteria are:

n++ Discretion of the Issuer - compulsory notch to differentiate from a senior instrument

n++ Principal Write-down - relative capital requirement over FY19

n++ Coupon Omission- minimum number of years of coupon service through FY19, on the projected AT1 borrowing

For AT1 instruments, the agency considers the discretionary component, coupon omission risk and write-down/conversion risk as key parameters to arrive at the final rating. The agency recognises the unique going-concern loss absorption features that these bonds carry and differentiates them from the banks senior debt, thus factoring in a higher probability of an ultimate loss for investors in these bonds.

Effectively the risks associated with an AT1 instrument are: 1) the issuing bank has the discretion to skip coupon payment, 2) the bank has to maintain a common equity tier I ratio of at least 5.5% (till FY19), failing which the bonds can be write-downs (temporary or permanent) and 3) in some cases there could be a clause to convert it into equity as well.

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Nominal GDP estimated to grow at 10.0 per cent during 2015-16 as against 10.7 per cent during 2014-15
Feb 01,2017

The Central Statistics Office (CSO), Ministry of Statistics and Programme Implementation has released the First Revised Estimates of National Income, Consumption Expenditure, Saving and Capital Formation for the financial year 2015-16 (with Base Year 2011-12) as per the revision policy. Second Revised Estimates for the year 2014-15 and Third Revised Estimates for the years 2012-13 and 2013-14 have also been released as per the calendar of revision of base year. Estimates for the year 2011-12 remain unchanged.

The First Revised Estimates for the year 2015-16 have been compiled using industry-wise/institution-wise detailed information instead of using the benchmark-indicator method employed at the time of release of Provisional Estimates on 31st May, 2016. The estimates of GDP and other aggregates for the years 2012-13 to 2014-15 have also undergone revision due to use of latest available data on agricultural production; industrial production especially those based on the provisional results of Annual Survey of Industries (ASI): 2014-15 and final results of ASI: 2013-14; government expenditure (replacing Revised Estimates with Actuals for the year 2014-15) and also more comprehensive data available from various source agencies and State/UT Directorates of Economics and Statistics.

The salient features of the estimates at aggregate level are indicated below:

Gross Domestic Product

Nominal GDP or GDP at current prices for the year 2015-16 is estimated as Rs. 136.75 lakh crore while that for the year 2014-15 is estimated as Rs. 124.34 lakh crore, exhibiting a growth of 10.0 per cent during 2015-16 as against 10.7 per cent during 2014-15.

Real GDP or GDP at constant (2011-12) prices for the years 2015-16 and 2014-15 stands at Rs. 113.58 lakh crore and Rs. 105.23 lakh crore, respectively, showing growth of 7.9 per cent during 2015-16 and 7.2 per cent during 2014-15.  

Industry-wise Analysis 

The changes in the Gross Value Added (GVA) at basic prices in different sectors of the economy at current and constant (2011-12) prices are presented in Statements 4.1 and 4.2 respectively. At the aggregate level, nominal GVA at basic prices increased by 8.6 per cent during 2015-16 as against 10.7 per cent during 2014-15. In terms of real GVA, i.e., GVA at constant (2011-12) basic prices, there has been a growth of 7.8 per cent in 2015-16, as against growth of 6.9 per cent in 2014-15.  

The shares of different sectors of the economy in terms of overall GVA during 2011-12 to 2015-16 and corresponding annual growth rates are mentioned below: 

SectorPercentage share in GVA at current pricesPercentage change in GVA at constant (2011-12) prices over the previous year2011-122012-132013-142014-152015-162012-132013-142014-152015-16Primary 21.7521.3621.5020.7619.831. GVA (Rs. in lakh crore)at current pricesat constant pricesTotal 81.0792.05103.66114.70124.5285.4890.7997.09104.70

The growth in real GVA during 2015-16 has been higher than that in 2014-15 mainly due to higher growth in Gagriculture, forestry & fishing (0.8%), Gmanufacturing (10.6%), Gtrade, repair, hotels & restaurants (11.6%), Gtransport, storage, communication & services related to broadcasting (9.1%) and Greal estate, ownership of dwelling & professional services (12.6%), as may be seen from Statement 4.2. During 2015-16, at constant prices, the growth rates of primary (comprising agriculture, forestry, fishing and mining & quarrying), secondary (comprising manufacturing, electricity, gas, water supply & other utility services, and construction) and tertiary (services) sectors have been estimated as 2.6 per cent, 7.8 per cent and 9.8 as against a growth of 1.8 per cent, 6.1 per cent and 9.5 per cent, respectively, in the previous year. 

Net National Income

Nominal Net National Income (NNI) at current prices for the year 2015-16 stands at Rs. 120.83 lakh crore as against Rs. 109.61 lakh crore in 2014-15, showing an increase of 10.2 per cent during 2015-16 as against an increase of 10.7 per cent in the previous year.  

Gross National Disposable Income

Gross National Disposable Income (GNDI) at current prices is estimated as Rs. 139.29 lakh crore for the year 2015-16, while the estimate for the year 2014-15 stands at Rs. 126.91 lakh crore, showing a growth of 9.7 per cent as against 10.4 per cent in the year 2014-15.  


Gross Saving during 2015-16 is estimated as Rs. 44.05 lakh crore as against Rs. 40.98 lakh crore during 2014-15. Rate of Gross Saving to GNDI for the year 2015-16 is estimated as 31.6 per cent as against 32.3 per cent, estimated for 2014-15.  

The highest contributor to Gross Saving is the household sector, with a share of 59.2 per cent in the year 2015-16. However, the share has declined from 62.0 per cent in 2014-15 to 59.2 per cent in 2015-16. This decline can be attributed to decline in household savings in physical assets, which has declined from Rs. 15.78 lakh crore in 2014-15 to Rs. 14.84 lakh crore in 2015-16. On the other hand, the share of Non-Financial Cor

Indias Air Passenger Volumes to Reach 310 million by FYE18, Aided by Economic Growth and Policy Impetus
Feb 01,2017

The overall air passenger volumes (pax) have been consistently increasing and are likely to reach 310 million by FYE18, says India Ratings and Research (Ind-Ra). This will be driven by the aspirations of the middle class to travel in flights and a reduction in price differential between air travel and rail journey, including the recently increased cancellation fees for train tickets.

The slowdown in economic growth during the first half of the current decade had minimal impact on pax growth. However, the 2008 global economic crisis and fuel and currency crises in FY13 had a pronounced impact on air traffic growth. The gradual increase in private final consumption expenditure has been buttressing Indias pax growth since early FY14. Ind-Ras sensitivity on economic growth also underlines the strong underlying fundamentals and continued growth in pax volumes.

Airports are an integral part of the aviation sector; hence, any impairment of airport functions exerts stress on the stake holders such as airlines, fuel suppliers and travellers. Large gateways such as Mumbai and Delhi airports and mid-market airport hubs such as Bangalore and Hyderabad airports have displayed strong volume resilience, despite unfavourable macroeconomic trends.

The new civil aviation policy has given clarity on the methods to determine aero revenue. 70% non-aero revenue that is outside the purview of the tariff setting mechanism will prove to be a significant contributor to EBITDA margin improvement. Commercial revenues (such as retail, car parking, rental cars and ground transportation) have collectively evolved to become the leading components of revenues to cover airports expenses and debt service. The ability of airports to stabilise these diversified revenue streams (aeronautical charges) or generate excess cash from them for asset preservation or increase operating margins could enhance their debt service coverage ratios or reduce leverage ratios.

Airport Economic and Regulatory Authority indicated a normative capital expenditure cost for the construction of new terminals and runways in June 2016. Previous construction costs for Ind-Ra rated airports were higher than the indicative costs and could bring in a disparity in the structural design and quality of construction. While greenfield airports (Bangalore and Hyderabad) were running at their full capacities, the order introduces an ambiguity among developers.

Although some airports are facing refinancing risks, Ind-Ra rated airports have refinanced their loans comfortably either through capital market instruments or through bank loans. Given the robust performance in the past, investors have shown interest in airport assets. However, Ind-Ra expects domestic airports to raise bonds in the domestic capital market as against international issuances earlier.

Brownfield expansions by airports are not on the cards till FY18; therefore, their debt/EBITDA is likely to reduce. However with the rapid growth in pax, utilisation is likely to reach the created capacity ahead of the original projected timelines. Hence, airports will be compelled to take up expansion plans ahead of the time.

To make air travel affordable for the masses, the government has introduced Regional Air Connectivity Scheme (RCS) with concessions on aviation turbine fuel, reduced air ticket prices, and exemption from airport charges. Ind-Ra expects the government in the FY18 budget to announce some contributions for RCS viability gap funding. However, slot non-availability for new aircraft in major hubs will be a constraint in operationalising RCS.

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Ind-Ra: Auto Sales Fuelled by Aspirational Utility Vehicle Volumes
Feb 01,2017

Surging volumes of compact utility vehicles (UVs) revs up growth for passenger cars in FY17, says India Ratings and Research (India Ratings). In the agencys assessment, the key contributors to higher demand for UVs are shifting preferences among buyers to aspirational products such as UVs and more options available in the segment. In addition, buyers having opted for larger UVs are migrating towards compact UVs given the regulatory challenges - such as the ban on registration of new large diesel passenger vehicles (PVs) in the National Capital Region which has hurt large diesel UVs in particular. In addition, the proliferation in the compact UV models which are available at attractive price points and availability of both petrol and diesel variants have also fuelled demand.

For the April to December 2016, UV volumes grew by 33%, compared with a mere 2.5% for cars. The overall growth rate of 8.6% for passenger vehicles (PV) for this period was pushed into the fast track by UVs. The surge in UV sales volumes can in turn be attributed to the success of the new compact UV models namely, Grand Vitara, S-Cross and Vitara Brezza from Maruti Suzuki India (MSIL) and Creta from Hyundai Motor India (HMIL). In line with the increased volume contribution from UVs, the share of UVs in total domestic PV volumes has increased to almost 25% in April to December 2016 from 21% in FY16.

Due to the intensely competitive nature of the domestic auto industry, the launch of new models on a regular basis has become a driving strategy for companies aspiring for high volumes and significant market share. It is observed that on the launch of a new model, sales volumes tend to spike initially, before other factors such as sustained on-road performance and consequent consumer perceptions determine monthly volumes over an extended period. The new launches in the UV segment in the past one year particularly by MSIL have supported volume growth in the segment in FY17.

Buyers shifting preferences to UVs from cars is evident from the reduction in the proportion of car sales to PV segment volumes to 69.3% in April to December 2016 (from 73.4% in the corresponding period of the previous year). This has been offset by a similar increase in contribution of UVs to the segment volumes to 24.8% (April-December 2016) from 20.2% yoy. The biggest beneficiaries of the surge in UV sales, MSIL and HMIL which reported 124% and 70.5% yoy growth in volumes respectively in UV sales in April to December 2016, also reported 0.7% and -4.1% yoy changes in their car sales volumes in the same period. In comparison, Mahindra & Mahindra Limited (M&M; IND AAA/Stable) which does not have a material presence in the car segment reported an increase in UV volumes at a modest growth rate of 4.4%.

The UV product portfolio of MSIL and HMIL mostly comprises compact UV models targeted primarily at urban buyers and their sales were therefore not impacted by the recent demonetisation drive, which is likely to have impacted sales of semi-urban and rural centric vehicles to a greater extent. This is considering the relatively higher proportion of cash dealings in transactions in these locations. Considering that the rural-centric Bolero model has traditionally accounted for over 30% of M&Ms UV volumes, M&Ms sales was impacted due to demonetisation. In general, UVs entail higher margins than cars and companies generating high revenue growth through UVs are expected to see improvement in operating margins in FY17.

The next trigger for the auto industry is the union budget FY18, India Ratings believes there could be a reduction in excise duty on large UVs in the upcoming budget, considering that under Goods and Service Tax (GST) the highest tax rate applicable is 28%, while large UVs (>1500cc engine capacity and length > 4m) attract excise duty of 30%. However the impact on overall UV sales would be moderate, since the highest volumes are being generated from the compact UV segment. Also any changes in the income tax slabs, resulting in a lower tax outgo for buyers will support demand for PVs.

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Manufacturing economy rebounds from rupee-demonetization downturn: Nikkei India Manufacturing PMI
Feb 01,2017

Indian manufacturing output increased during January on the back of rising order books. Greater production needs encouraged companies to purchase more inputs, but failed to generate jobs in the sector. On the price front, input cost inflation climbed to its highest mark since August 2014, while output charges were raised for the eleventh successive month.

Having deteriorated in December for the first time in one year, the health of Indias manufacturing economy improved in the opening month of 2017. The headline Nikkei India Manufacturing Purchasing Managers IndexTM (PMI)TM was up from 49.6 to 50.4 in January.

The main factors contributing to the above-50.0 PMI reading were growth of both new orders and output. Rates of expansion were only slight, but reversed the contractions noted in December. Anecdotal evidence highlighted a return to normal market conditions and a subsequent improvement in demand. In contrast to the upturn in total new business, new export orders fell again. Having eased since the previous month, the rate of reduction was marginal.

Intermediate goods was the bright spot in January, with rates of expansion in both new work and production outstripping those seen in the consumer goods sector. Meanwhile, investment goods dipped into contraction.

Survey data pointed to an increasing degree of pressure on the capacity of manufacturers operations as backlogs rose at a quicker rate than in December. In spite of this, companies kept their payroll numbers unchanged in January.

Holdings of finished goods decreased in January, amid evidence from survey participants of orders being fulfilled directly from stocks. The rate of depletion was marked, and the quickest since last May. Concurrently, pre-production inventories declined slightly, but at a pace that was the fastest in over three years.

Manufacturers attempted to replenish their input stocks by purchasing greater quantities of raw materials and semi-finished items in January. That said, the overall rate of growth was only slight and well below its long-run average.

Rates of input cost inflation accelerated in each of the three tracked sectors, led by intermediate goods. Across the manufacturing economy as a whole, input cost inflation climbed to a 29-month peak. Where cost burdens rose, there were mentions of higher prices paid for metals, chemicals, plastics, textiles and paper.

As part of ongoing efforts to protect margins, Indian manufacturers raised their own selling prices for the eleventh successive month in January. However, the rate of inflation remained only marginal.

Newly-released future output data, which have been collected since April 2012, showed a pick-up in manufacturers confidence during January. Promotional activities and better economic conditions are anticipated to underpin production growth over the coming 12 months.

Commenting on the Indian Manufacturing PMI survey data, Pollyanna De Lima, Economist at IHS Markit and author of the report, said:

n++The Indian manufacturing economy recovered from the one-off downturn that hit the sector in December following the withdrawal of high-value banknotes. January saw only modest increases in order books, production and buying levels, but the quick rebound will be welcome news to policymakers.

n++Improving confidence among firms bodes well for the outlook, with the expansion in manufacturing output likely to pick up pace in coming months. IHS Markit forecasts a 6.9% rise in GDP for FY16, with growth anticipated to accelerate to 7.4% in FY 2017.n++

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Income Tax Department (ITD) launches Operation Clean Money
Feb 01,2017

Income Tax Department (ITD) has initiated Operation Clean Money. Initial phase of the operation involves e-verification of large cash deposits made during 9th November to 30th December 2016. Data analytics has been used for comparing the demonetisation data with information in ITD databases. In the first batch, around 18 lakh persons have been identified in whose case, cash transactions do not appear to be in line with the tax payers profile.

ITD has enabled online verification of these transactions to reduce compliance cost for the taxpayers while optimising its resources. The information in respect of these cases is being made available in the e-filing window of the PAN holder (after log in) at the portal The PAN holder can view the information using the link n++Cash Transactions 2016n++ under n++Compliancen++ section of the portal. The taxpayer will be able to submit online explanation without any need to visit Income Tax office.

Email and SMS will also be sent to the taxpayers for submitting online response on the e-filing portal. Taxpayers who are not yet registered on the e-filing portal (at should register by clicking on the Register Yourself link. Registered taxpayers should verify and update their email address and mobile number on the e-filing portal to receive electronic communication.

A detailed user guide and quick reference guide is available on the portal to assist the taxpayer in submitting online response. In case of any difficulty in submitting on line response, help desk at 1800 4250 0025 may be contacted.

Data analytics will be used to select cases for verification, based on approved risk criteria. If the case is selected for verification, request for additional information and its response will also be communicated electronically. The information on the online portal will be dynamic getting updated on receipt of new information, response and data analytics.

The response of taxpayer will be assessed against available information. In case explanation of source of cash is found justified, the verification will be closed without any need to visit Income Tax Office. The verification will also be closed if the cash deposit is declared under Pradhan Mantri Garib Kalyan Yojna (PMGKY).

The taxpayers covered in this phase should submit their response on the portal within 10 days in order to avoid any notice from the ITD and enforcement actions under the Income-tax Act as also other applicable laws.

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Eight core infrastructure sector output rises 5.6% in December 2016
Jan 31,2017

The output of eight core infrastructure sector comprise nearly 38% of items included in the Index of Industrial Production (IIP) increased 5.6% in December 2016 over December 2015. Its cumulative growth improved 5% in April-December 2016.

Coal production (weight: 4.38%) increased by 4.4% in December, 2016 over December, 2015. Its cumulative index during April to December, 2016-17 increased by 2.0% over corresponding period of previous year.

Crude Oil production (weight: 5.22%) declined by 0.8% in December, 2016 over December, 2015. Its cumulative index during April to December, 2016-17 declined by 3.2% over the corresponding period of previous year.

The Natural Gas production (weight: 1.71%) declined by 0.01% in December, 2016 over December, 2015. Its cumulative index during April to December, 2016-17 declined by 3.3% over the corresponding period of previous year.

Petroleum Refinery production (weight: 5.94%) increased by 6.4% in December, 2016 over December, 2015. Its cumulative index during April to December, 2016-17 increased by 7.8% over the corresponding period of previous year.

Fertilizer production (weight: 1.25%) declined by 4.7% in December, 2016 over December, 2015. Its cumulative index during April to December, 2016-17 increased by 3.4% over the corresponding period of previous year.

Steel production (weight: 6.68%) increased by 14.9% in December, 2016 over December, 2015. Its cumulative index during April to December, 2016-17 increased by 8.9% over the corresponding period of previous year.

Cement production (weight: 2.41%) declined by 8.7% in December, 2016 over December, 2015. Its cumulative index during April to December, 2016-17 increased by 2.8% over the corresponding period of previous year.

Electricity generation (weight: 10.32%) increased by 6.0% in December, 2016 over December, 2015. Its cumulative index during April to December, 2016-17 increased by 5.4% over the corresponding period of previous year.

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The Constitutional Amendment on GST will create a common Indian market, improve tax compliance and governance and boost investment and growth
Jan 31,2017

The Economic Survey 2016-17 presented in Parliament today states that against the backdrop of robust macro-economic stability, the year was marked by two major domestic policy developments-the passage of the Constitutional Amendment, paving the way for implementing the transformational Goods and Services Tax (GST), and the action to demonetize the two highest denomination notes. The GST will create a common Indian market, improve tax compliance and governance, and boost investment and growth; it is also a bold new experiment in the governance of Indias cooperative federalism.

The Survey Report says that demonetisation has had short-term costs but holds the potential for long-term benefits. Follow-up actions to minimize the costs and maximize the benefits include: fast, demand-driven, remonetisation; further tax reforms, including bringing land and real estate into the GST, reducing tax rates and stamp duties; and acting to allay anxieties about over-zealous tax administration. These actions would allow growth to return to trend in 2017-18, possibly making it the fastest-growing major economy in the world, following a temporary dip in 2016-17.

The Economic Survey 2016-17 states that the year was also marked by some tumultuous external developments. In the short-run, world GDP growth is expected to increase because of a fiscal stimulus in the United States but there are considerable risks. These include higher oil prices, and eruption of trade tensions from sharp currency movements, especially involving the Chinese yuan, and from geo-political factors. Another serious medium-term risk is an upsurge in protectionism that could affect Indias exports.

The Survey states that the year also saw a number of legislative accomplishments in the country. In addition to the GST, the Government:

n++ Overhauled the bankruptcy laws so that the n++exitn++ problem that pervades the Indian economy--with deleterious consequences highlighted in last years Survey--can be addressed effectively and expeditiously;

n++ Codified the institutional arrangements on monetary policy with the Reserve Bank of India (RBI), to consolidate the gains from macroeconomic stability by ensuring that inflation control will be less susceptible to the whims of individuals and the caprice of governments; and

n++ Solidified the legal basis for Aadhaar, to realise the long-term gains from the JAM trifecta (Jan Dhan-Aadhaar-Mobile).

Beyond these headline reforms were other less-heralded but nonetheless important actions. The Government enacted a package of measures to assist the clothing sector that by virtue of being export-oriented, labour-intensive could provide a boost to employment, especially female employment. The National Payments Corporation of India (NPCI) successfully finalized the Unified Payments Interface (UPI) platform. By facilitating inter-operability, UPI has the potential to unleash the power of mobile phones in achieving digitalization of payments and financial inclusion, and making the n++Mn++ an integral part of n++JAM.n++ Further FDI reform measures were implemented, allowing India to become one of the worlds largest recipients of foreign direct investment. The government has also adhered to a steady and consistent path of fiscal consolidation.

The major short term macro-economic challenge is to re-establish private investment and exports as the major drivers of growth and reduce reliance on Government and private consumption. Addressing the Twin Balance Sheet problemn++over-indebted corporates and bad-loan-encumbered public sector banksn++a legacy of the years surrounding the Global Financial Crisis will be vital.

Looking further ahead, societal shifts at the level of ideas and narratives will be needed to overcome three long-standing meta-challenges: inefficient redistribution, ambivalence about the private sector and property rights, and improving but still-challenged state capacity. Doing so would lift an economy that is oozing with potential. In the aftermath of demonetisation, and at a time of gathering gloom about globalization, articulating and embracing those ideational shifts will be critical to ensuring that Indias sweet spot is enduring not evanescent.

The report says that India seems to be a demographic sweet spot with its working age population projected to grow by a third over the next three decades providing it a potential the growth boost from the demographic divided which is likely to peak within next five years.

The Survey report also states that the Swachh Bharat which has the objective of ensuring safe and adequate sanitation, water security and hygiene has been a part of serious policy issue which would promote a broader fundamental right to privacy for women in the country.

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Redistributive Resource Transfers (RRT) should be significantly linked to fiscal and governance efforts on the part of the states: Economic Survey
Jan 31,2017

The Economic Survey 2016-17, which was presented today in parliament by the Finance Minister Shri.Arun Jaitly, examines whether the effects associated with the n++aid cursen++ and the n++natural resources cursen++ internationally are discernible in the context of the Indian States. It calculates Redistributive Resource Transfers (RRT) from the Centre (between 1994 and 2015) and value of natural resources for Indian States (over 1980 and 2014) and correlates these with several economic outcomes and an index of governance

Redistributive Resource Transfer or RRT to a state (from the Centre) is defined as gross devolution to the state adjusted for the respective states share in aggregate Gross Domestic Product(GDP). The top 10 recipients are: Sikkim, Arunachal Pradesh, Mizoram, Nagaland, Manipur, Meghalaya, Tripura, Jammu and Kashmir, Himachal Pradesh and Assam.

Annual per capita RRT flows for all north-eastern states (except Assam) and Jammu & Kashmir have exceeded the annual per-capita consumption expenditure that defines the all-India poverty lines, especially the rural line.

The Economic Survey 2016-17 points out that there is no evidence of a positive relationship between these transfers and various economic outcomes, including per capita consumption, GSDP growth, development of manufacturing, own tax revenue effort, and institutional quality.

Instead, there is a suggestive evidence of a negative relationship. For example, larger RRT flows seem to negatively affect fiscal effort (defined as the share of own tax revenue to GSDP). These trends are robust to alternative definitions of RRT.

Also, whether mineral rich states like Jharkhand, Chhattisgarh, Odisha, Rajasthan and Gujarat ,are doing well on the metrics of economic outcomes and governance is considered in the context of redistributive transfers. However, this does not reveal conclusive results and there is no evidence of a negative relationship between fiscal effort and reliance on revenue from natural resources over the period 2001-14.

Thus, the existence of a RRT curse and the lack thereof of a natural resource curse in the context of Indian States implies that both the Centre and States need to act to mitigate the effects of the former and guard against the emergence, in future, of the latter. In this context, the question is whether RRT, in future, can be linked more saliently to fiscal and governance efforts on the part of the States.

The Economic Survey 2016-2017, also suggests providing a part of the RRTs or to redistribute the gains from resource use as a Universal Basic Income (UBI) directly to households in relevant states which receive large RRT flows and are more reliant on natural resource revenues.

Finally, recognizing and responding creatively to possible pathologies created by large bounties-either in the form of redistributive resources or natural resources, will be important to avoid making the errors of history.

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Labour migration in India increasing at an accelerating rate, reveals new study: Economic Survey 2016-17
Jan 31,2017

New estimates of labour migration in India have revealed that inter-state labor mobility is significantly higher than previous estimates. This was stated in the Economic Survey 2016-17 presented by the Finance Minister Shri Arun Jaitley in the Parliament today. The study based on the analyses of new data sources and new methodologies also shows that the migration is accelerating and was particularly pronounced for females. The data sources used for the study are the 2011 Census and railway passenger traffic flows of the Ministry of Railways and new methodologies including the Cohort-based Migration Metric (CMM) .

The new Cohort-based Migration Metric(CMM) shows that inter-state labor mobility averaged 5-6.5 million people between 2001 and 2011, yielding an inter-state migrant population of about 60 million and an inter-district migration as high as 80 million. The first-ever estimates of internal work-related migration using railways data for the period 2011-2016 indicate an annual average flow of close to 9 million migrant people between the states. Both these estimates are significantly greater than the annual average flow of about 4 million suggested by successive Censuses and higher than previously estimated by any study.

The second finding from this new study is that migration for work and education is accelerating. In the period 2001-2011 the rate of growth of labour migrants nearly doubled relative to the previous decade, rising to 4.5 per cent per annum. Interestingly, the acceleration of migration was particularly pronounced for females and increased at nearly twice the rate of male migration in the 2000s. There is also a doubling of the stock of inter-state out migrants to nearly 12 million in the 20-29year old cohort alone. One plausible hypothesis for this acceleration in migration is that the rewards (in the form of prospective income and employment opportunities) have become greater than the costs and risks that migration entails. Higher growth and a multitude of economic opportunities could therefore have been the catalyst for such an acceleration of migration.

Third, and a potentially exciting finding, for which there is tentative but no conclusive evidence, is that while political borders impede the flow of people, language does not seem to be a demonstrable barrier to the flow of people. For example, a gravity model indicates that political borders depress the flows of people, reflected in the fact that migrant people flows within states are 4 times than migrant people flows across states. However, not sharing Hindi as a common language appears not to create comparable frictions to the movement of goods and people across states.

Fourth, the patterns of flows of migrants found in this study are broadly consistent with what is expected - less affluent states see more out migration migrating out while the most affluent states are the largest recipients of migrants. Relatively poorer states such as Bihar and Uttar Pradesh have high net out-migration. Seven states take positive CMM values reflecting net in-migration: Goa, Delhi, Maharashtra, Gujarat, Tamil Nadu, Kerala and Karnataka. Fifth, the costs of moving for migrants are about twice as much as they are for goods - another confirmation of popular conception.

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Real per capita GSDP between 1983 and 2014, shows across-the-board improvement: Economic Survey 2016-17
Jan 31,2017

The Union Finance Minister Shri Arun Jaitley presented the Economic Survey 2016-17 in the Parliament today. The Economic Survey states that while economic performance has been remarkable in the aggregate, Indias success as a federation depends on the progress of each of its individual states. What is a reasonable standard for assessing how well the states are doing? One intuitive metric is to see how well individual states have done over time on two sets of indicators: economic indicators, such as income and consumption, and health/demographic indicators such as infant mortality rate, life expectancy, and total fertility rate. Our analysis of these indicators begins in the 1980s, when the structural break from the previous era of the n++Hindu Growth Raten++ occurred.

The Economic Survey states that seeing only the shift in the levels of these indicators does not give us the full picture because there is no benchmark for relative assessment. Here, economic theory provides us a useful metric: convergence (or unconditional convergence). Convergence means that a state that starts off at low performance levels on an outcome of importance, say the level of income or consumption, should grow relatively faster over time, improving its performance so that it catches up with states which had better starting points.

The Economic Survey mentions that when studying real per capita GSDP over time between 1983 and 2014 ,there has been a clear increase in levels indicating an across-the-board improvement. For example, between 1984 and 2014, the poorest state (Tripura, with a per capita income of INR 11,537 in 1984 to INR 64,712 in 2014) increased its per capita GDP 5.6 fold; the median state (Himachal Pradesh) increased its income level 4.3 fold.

The Economic Survey mentions that, when convergence in real per capita GDP is studied for the latest decade (2004-2014), it is found that while incomes converge for provinces in China and for countries in the world, in India, they diverge. When convergence in real per capita consumption for states in India is studied, the same trend of divergence is observed. Despite growing rapidly on average, there is sign of growing regional inequality among the Indian states. This is puzzling because the underlying forces in favor of equalization within Indian++namely strong and rising movements of goods and peoplen++are strongly evident. This is not found to be the case in the previous decade (1994-2004), when we see that incomes in China, India and the world were all diverging/weakly converging.

The Economic Survey elaborates that to observe convergence, we should see a downward sloping line - this means that the countries/provinces/states that start off poorer subsequently grew faster, closing the gap with more developed countries/states. The opposite is happening in India.

The Economic Survey states that a similar trend of consumption divergence is observed within India for the three time periods of 1983-1993, 1993-2004 and 2004-2011. All this suggests that over time, regional income/consumption inequality in India is not narrowing despite such gaps narrowing across countries in the world and within China. The Indian paradox is doubly confounding: thicker international borders that are more impervious to the equalizing flows of factors if production lead to convergence but the supposedly porous borders within India perpetuate spatial inequality.

The Economic Survey further states that one possible hypothesis for seeing a regional dispersion in income and consumption is that there might be governance traps that impede the catch-up process. And if there are such traps, labor and capital mobility might even aggravate underlying inequalities. But why such traps persist if competitive federalism is forcing change upon the lagging states remains an open question.

The Economic Survey remarks that in contrast, on health, there is strong evidence of convergence amongst the states in the 2000s. But here it is the international contrast that is striking. With regards to life expectancy, the Indian states are close to where they should be given their level of income. But that is not true of IMR (Infant Mortality Rate), suggesting that the n++mother and childn++ (discussed also in last years Survey) bear the brunt of weaker delivery of health services.

The Economic Survey states that but what really stands out in the international comparison is fertility (measured using Total Fertility Rate), where we find that for their levels of development, the Indian states have much lower levels of fertility than countries internationally. These unusually large declines in fertility have strongn++and potentially positiven++implications for Indias demographic dividend going forward.

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Apparel and Leather industry key to generation of formal and productive jobs: Economic Survey 2016-17
Jan 31,2017

Apparel and Leather & Footwear sectors are eminently suitable for generating jobs that are formal and productive, providing bang-for-buck in terms of jobs created relative to investment and generating exports and growth. This was stated in the Economic Survey 2016-17 presented by the Finance Minister Shri Arun Jaitley in the Parliament today. The Survey adds that these sectors provide immense opportunities for creation of jobs for the weaker sections, especially for women, and can become vehicles for broader social transformation in the country.

The Survey highlights the opportunity for India in this sector in global context by saying that India has an opportunity to push exports since rising wage levels in China has resulted in China stabilizing or losing market share in these products. India is well positioned to take advantage of Chinas deteriorating competitiveness due to lower wage costs in most Indian states, it adds.

The Survey also lists a number of challenges faced by these sectors. It says that the space vacated by China is fast being taken over by Bangladesh and Vietnam in case of apparels and Vietnam and Indonesia in case of leather and footwear, while Indian companies struggle in face of a set of common challenges related to logistics, labour regulations, tax & tariff policy and disadvantages emanating from the international trading environment compared to competitor countries.

On logistics, the Survey says that costs and time involved in getting goods from factory to destinations are greater in India than those for other countries. On labour costs, Indias source of comparative advantage in this sector, also seem not to work in its favour due to problems like regulations on minimum overtime pay, onerous mandatory contributions that become de facto taxes for low-paid workers in small firms that result in a 45 per cent lower disposable salary, lack of flexibility in part-time work and high minimum wages in some cases.

According to the Survey, in both apparel and footwear sectors, tax and tariff policies create distortions that impede India gaining export competitiveness. India imposes a 10 percent tariff on man-made fibers vis- a-vis 6 percent on cotton fibres. On the other hand, domestic taxes also favor cotton-based production rather than production based on man-made fibers, and leather footwear rather than non leather footwear. The global demand for apparel is moving from cotton fibre products to manmade fibre and similarly footwear of non leather, it adds. Indias competitors enjoy better market access by way of zero or at least lower tariffs in the two major importing markets, namely, the United States of America (USA) and European Community (EU), the Survey says.

Another problem faced by the leather sector highlighted by the Survey is that despite having a large cattle population, Indias share of cattle leather exports is low and declining due to limited availability of cattle for slaughter in India.

The Survey suggests several measures to make these sectors globally competitive and unlock its potential for creating new jobs and generating growth. It recommends that there is a need to undertake rationalization of domestic policies which are inconsistent with global demand patterns.

. Several measures have been initiated that form part of the package approved by the Government for textiles and apparels in June 2016, the Survey notes. Accordingly, textile and apparel firms will be provided a subsidy for increasing employment, but these need to be complemented by further actions such as the following:

n++ An FTA with EU and UK in the case of apparel will offset an existing disadvantage by Indias competitors- Bangladesh, Vietnam and Ethiopia. In the case of leather and footwear, the FTA might give India an advantage relative to competitors. In both cases, the incremental impact would be positive.

n++ The introduction of the GST offers an excellent opportunity to rationalize domestic indirect taxes so that they do not discriminate in the case of apparels against the production of clothing that uses man-made fibers; and in the case of footwear against the production of non-leather based footwear.

n++ Third, a number of labor law reforms would encourage employment creation in these two sectors.

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Property Tax can be tapped to generate Additional Revenue at City Level
Jan 31,2017

The Economic Survey 2016-17, presented today in the Parliament by the Union Finance Minister Shri Arun Jaitley, stated that Urban Local Bodies (ULBs), having primary responsibility for the development and service provisioning of cities, face major and inextricably linked problems: large infrastructure deficits, inadequate finances, and poor governance capacities. Every Indian city faces serious challenges related to water and power supply, waste management, public transport, education, healthcare, safety, and pollution.

The analysis carried out for the Survey has found that greater service delivery is correlated with more resources, own revenue, staffing and capital spending per capita. Analysis indicates no clear relationship between service delivery and governance.

Currently, tax revenues are not constrained by inadequate taxation powers of ULBs. One promising source is property tax. The study done for the Survey shows that property tax potential is large and can be tapped to generate additional revenue at city level. Satellite imagery can be a useful tool for improving urban governance by facilitating better property tax compliance. The study has shown that Bengaluru and Jaipur are currently collecting no more than 5-20 per cent of their respective potentials for property tax.

Competition between States is becoming a powerful dynamic of change and progress, that dynamic must extend to competition between States and Cities and between cities. Cities that are entrusted with responsibilities, empowered with resources, and encumbered by accountability can become effective vehicles for competitive federalism and, indeed, competitive sub-federalism to be unleashed.

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